Freddie Mac has announced a new initiative to help renters build credit by encouraging operators of multifamily properties to report on-time rental payments to the three major credit reporting bureaus. Presently, less than 10 percent of renters see their on-time rental payment history reflected in their credit scores. This inhibits their ability to access credit or obtain competitive rates for a range of financial products.
The initiative, which incentivizes rent reporting via technology created by Esusu Financial Inc., will deliver on-time rental payment data from property management software platforms to the credit bureaus. It will also help renters verify their rental history and automatically unenroll renters when missed payments occur, preventing harm to those who struggle financially.
"Rent payments are often the single largest monthly line item in a family's budget but paying your rent on time does not show up in a credit report like a mortgage payment," said Michael DeVito, CEO of Freddie Mac. "That puts the 44 million households who rent at a significant disadvantage when they seek financing for a home, a car or even an education."
Freddie Mac will provide closing cost credits on multifamily loans for owners of rental properties who agree to report on-time rental payments through Esusu's platform. The platform manages the end-to-end process of reporting rental payments to all three major credit bureaus, eliminating the administrative and compliance burden for property owners, which has been the largest hurdle facing industry efforts to report rental data.
"At present, the most common way for rents to be reported to the credit bureaus is when there is a missed payment that has gone to a collections agency," said Alexis Sofyanos, senior director of Equity in Multifamily Housing at Freddie Mac. "Freddie Mac wants to flip that script, so that renters who pay their rent on time and in full each month get credit for doing so, while also putting in safeguards for the most vulnerable."
Freddie Mac's initiative is good news for renters who wish to become first-time homebuyers, according to Joanne Fraser, president of the Silicon Valley Association of Realtors. Fraser noted, "The Consumer Financial Protection Bureau says there are about 45 million adults who are considered 'credit invisible,' because they have no credit history. The majority are immigrants, minorities and low-to-moderate income households."
A report from Apartmentlist.com indicates since January of this year, the national median rent has climbed by 16.4 percent. Another report from the apartment rental website Zumper, ranked New York City at the top of the list of cities having the highest rent for a median one-bedroom at $2,950. San Francisco came in second at $2,800. San Jose was fifth at $2,200 and Oakland ranked eighth at $2,000.
"Many renters are paying so much rent, but their payments are not gaining them any equity. On-time rent payments counted in credit ratings will enable renters to achieve a score that lenders will consider more favorably toward mortgage loans and better interest rates. This would help them if they decide to purchase a home," said Fraser.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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